Agency Summit

CEOs from nine leading firms gathered in New York for this Ketchum-sponsored roundtable to discuss how the sector can continue market share gains and increase its clout at the highest levels of business.

CEOs from nine leading firms joined Steve Barrett in New York for this Ketchum-sponsored roundtable to discuss how the sector can continue market share gains and increase its clout at the highest levels of business.

Participating CEOs:
Tom Coyne, Coyne PR
Harris Diamond, CMG/Weber Shandwick
Richard Edelman, Edelman
Aedhmar Hynes, Text 100
Ray Kotcher, Ketchum
Margery Kraus, APCO Worldwide
Jen Prosek, CJP Communications
Kim Sample, Emanate
Dave Senay, Fleishman-Hillard

Business impact
Steve Barrett (PRWeek): Communications has a much bigger impact on business. How can that be embedded, what value can you add, and how do you get the message across?

Ray Kotcher (Ketchum): PR has always been about what you say – today it's more about what you do. We're living in this always-on world where every institution is looked at day and night. What companies do internally, how they behave, their culture, values, character, are as important as ever.

More and more of our work focuses on internal change communication, change management, behavior, value systems, and culture because CEOs and other people in the C-suite understand that external reputation is only as good as the actions they take and behavior inside the company. Those two things have to come together.

Richard Edelman (Edelman): We should not position ourselves as communications companies – we do advice and communications. If we say we're in communications we group ourselves with advertising. We're bigger than that. We're more aligned with management consultants.

Jen Prosek (CJP Communications): We're grouped with consultancies and for the first time deans of major business schools are considering reputation management and our profession's curriculum. Emerging markets such as hedge funds that never had PR firms are now on speed dial with us. There's an opening like we've never had before.

Margery Kraus (APCO Worldwide): Part of that paradigm shift is about reputational equity and how intangibles affect the tangible assets of a company, so reputation has reached board level like never before. Reputation is the responsibility of every subcommittee and performance is measured against it.

Aedhmar Hynes (Text 100): Institutional trust is at an all-time low, so you have boards of directors caring about this, whereas in the past PR or communications could be relegated to “you take care of this, we're doing the real business in here.”

External factors forced boards to re-look at the role of the consultant in core business elements: driving sales, hiring, internal brand – things that weren't previously as important.

Harris Diamond (CMG/Weber Shandwick): To an extent this debate has been settled. I remember 15 years ago there was a reputational aspect to an M&A deal, an IPO, a crisis, but we weren't hired before that. They saw it as event-driven rather than naturally part of their work.

Tom Coyne (Coyne PR): They were about defense not offense.

Diamond (CMG/Weber Shandwick): Right. That all changed several years ago. It's accepted now.

PR firms are accepted as leaders within corporations for advice and counsel on reputation. But it's gone beyond that, which is why we're having such a good moment in our industry. It's now also about the product, relationship with the consumer, every element.

CMOs didn't see us as anything but tactical executors before. We had good budgets. We were the people there to promote the product. Today they see us as integral to how that product is positioned – and that's a change between us and the ad agencies.

Kraus (APCO Worldwide): The movement to business with a purpose really changed this understanding of how it translates at the corporate, but also product level. What you stand for is what you sell, what you sell is what you stand for. How you do it is just as important as what you're doing.

Coyne (Coyne PR): We earned our position at the table because we've proven over the last 10 years we can drive business. CMOs will not have time for you if you just run through tactics.

Kim Sample (Emanate): We're doing better at accessing sophisticated research other consultants and disciplines might bring in, so we've been doing sophisticated message testing with clients. That can have a dramatic impact on executives thinking about a communication expense.

Diamond (CMG/Weber Shandwick): We mustn't forget a large part of what we do is creatively attuned, meaning still being willing to take a risk. Research doesn't necessarily take that up.

Not every program can be fundamentally tested. Sometimes people are inspired by our people because they are intuitively creative in understanding culture and how that will accept the idea.

As much as we like to be management consultants, we're not. This is one of the few places I disagree with Richard. I don't necessarily want to be a management consultant because creativity is at the root of our executional capability and that's still a large part of our business.

Hynes (Text 100): Sometimes we get caught up inside baseball and in wanting to promote the great work, whereas if we're true consultants the work we do should be stealth and behind the scenes.

Look at the great brands and companies people around this table support. Recognize that there haven't been huge gaps and that these companies' stock prices continue to climb. That is enough for people to ask who are the consultants advising these organizations.

Where the money goes
Barrett (PRWeek): PR represents 7% to 8% of marketing spend. What's the potential size of the opportunity if we accept this is the most exciting time for PR?

Diamond (CMG/Weber Shandwick): TV always throws off the numbers. We don't live in that world, so we don't consider that.

A certain amount of money should be spent on ads, direct – other disciplines contribute to the value proposition. But right now the opportunity for us is an ever-enlarging increase of the marketing wallet.

Hynes (Text 100): The pie is also getting bigger. In a few years' time we won't talk about marketing or PR dollars, we'll be talking about things with different names.

Prosek (CJP Communications):
And there are all these emerging markets, whether they're industries or countries.

Kotcher (Ketchum): On the marketing side, 40% to 50% of CMOs say they're going to increase PR spend in the coming year and over five years.

Edelman (Edelman): Some tech clients spend 25% to 30% of total marketing budget on PR – it's the highest end of total spend. Packaged goods would be the lowest. If we're wildly optimistic, if we're at 7% now, we can get 15% to 20% of total budget, excluding TV dollars. Within 10 years, we can double our share.

Diamond (CMG/Weber Shandwick): We're one of the few marketing segments that say the opportunity is good. Others are still figuring out the new world of fragmented markets.

Kraus (APCO Worldwide): What kind of pressures come from being in a holding company when that happens, when there is realignment among the disciplines?

Diamond (CMG/Weber Shandwick): By definition, a holding company is more neutral.

Hynes (Text 100): But there is a higher profitability coming from one discipline than another.

Diamond (CMG/Weber Shandwick): Not necessarily. Over a couple of years, most marketing disciplines are making roughly the same percentage. Some might have greater growth, but the numbers are relatively similar. That's what procurement understands, too.

Edelman (Edelman): The holding companies are going to be Darwinian here. Publicis has bought a lot of digital assets and is going to have to say that's where the play is, as opposed to putting digital into Saatchi.

Aedhmar Hynes (Text 100): The concept that only the holding company can go after a budget and know that the best idea is going to get paid for some work doesn't hold true because of the competitive nature in these companies, where everybody is rewarded on their P&L.

Diamond (CMG/Weber Shandwick): Why is that different than independent?

Hynes (Text 100): Due to a Darwinian culture, a lot of disciplines in holding companies have to compete to make sure that dollar gets in their door.

Diamond (CMG/Weber Shandwick): I used to own my own firm. I competed heavily against a guy named Richard Edelman and I was focused on making sure it came into my door. I'm not sure anything has changed in the last 10 years.

Hynes (Text 100): If a holding company figures out how to get companies to reward and incent them on the performance of the individual brand that could be an industry game-changer.

Diamond (CMG/Weber Shandwick): I'm looking for a company to have great ideas that enhance a client's business. One of the advantages of being in a holding company is the access to additional resources – that contributed to the growth of our group companies.

The biggest issue is about employees and whether or not they believe they can have long careers. Can you build a culture or is culture going to be consumed by something else?

Fighting stigmas
Barrett (PRWeek): Does it matter that the industry becomes associated with gaffes, spin, and dodgy practices because you can't talk about the good work?

Diamond (CMG/Weber Shandwick): I don't think we are tarred with that. We are marketers – first and foremost that is what we're paid to do. We try to persuade people to like something, buy something, or do something.

Even in the corporate world we're sometimes trying to mitigate, but that's trying to persuade them to not necessarily see the issue the way it could be perceived.

Edelman (Edelman): We have to be careful not to let politics be the origin of the intellectual capital of PR because the more we're associated with bare-knuckle fighting in Washington, the more it hurts us. I'm not talking about our public affairs work, but that we take the techniques of the black arts or spin room.

Diamond (CMG/Weber Shandwick): When we started the business a lot of people came from the political world, but that's not true anymore. When there's a crisis and the PR firm is involved, did we try to mitigate it by doing something that made it less serious than people think it should be?

Kraus (APCO Worldwide): Everything we're saying is pretty, if not American, Western. Given where the world is going it's interesting to ask, “Does this apply?” In some markets this is such a new profession it's not really understood. It's not embedded in the way corporations make decisions. It has a long way to go.

The challenge is to influence the way the profession develops in regions that started with, maybe, paying journalists and other practices we would just find totally crazy.

Hynes (Text 100): What topics should this industry stand for? That's more interesting than being defensive.

Kotcher (Ketchum): No institution is perfect and nothing functions at 100% all the time. Whether it's a government institution or religious enterprise, there are always going to be issues.

Our job was about external communications around issues or opportunities. But companies increasingly understand that communications has to start from the inside and work its way out. They make sure they're doing the things they need to internally, so their external reputation grows out of their internal behaviors.

This is not just a US phenomenon. It's taking place in Europe, Asia, Latin America. And it's taking place at C-suite level. Companies are looking at who they are and what they stand for – that's where communications begins.

Hynes (Text 100): But there's an inherent danger in how you describe that because if a company is looking at what it is and what it stands for, there's a danger it is deaf to the external world. It's got to be done in parallel with the ability to crowdsource, to really understand what it is. Historically, it was always internal out. Now the opportunity to shape that organization is the interplay between external in.

Kraus (APCO Worldwide): Some of the better companies have done this organically. But some at the other end of that spectrum are reluctantly coming in this direction because they realize it's important for business. There's a big opportunity for us to continually educate people about why what we do is important.

Diamond (CMG/Weber Shandwick):  The biggest opportunity is that the entire world understands reputation is the business card. It's the first and foremost thing people see when somebody introduces themselves. They immediately Google it or intuitively know it. Either way they immediately know a company has the following issues.

One reason we're having such a great time is people understand we can only enhance that and help. We're seeing that opportunity globally in ways we never have before.

Edelman (Edelman): But if the business is moving toward social and digital, it seems to me the political characterizations become more problematic.

Kraus (APCO Worldwide): The abuse that came up in the Lord Bell/Bell Pottinger case is not the norm. What was so foreign to people in that case was the blatant nature of selling influence.

Diamond (CMG/Weber Shandwick): It taints us to an extent, but that's a small part of the business and a bigger issue is whether we accept everybody as a client.

We all know some clients have questionable issues. We try to figure out if they're genuinely changing and if we are comfortable that our own people will be comfortable representing it.

Coyne (Coyne PR): The world caught up to us a little bit. Our business has been about getting companies to think about social good and that being a benefactor brings tremendous benefits. We've led them that way. We talked about how you treat your employees, the environment. How you market and communicate.

I love the position we're in now because we enable that social good to happen. We come in with ideas that fuel it, change it, and fund it. Arguably, we do more good than any other marketing industry because we encourage them at every turn to make changes.

Kotcher (Ketchum): The heritage of PR is corporate communication. Corporate comms people always looked at reputation and how to build and protect that. That's their job. That's what they still do today.

Now you have a tremendous growth of PR in marketing. These two areas are beginning to converge. What we learned in corporate communications about building and protecting reputations is becoming very important in marketing, too. PR people are in an amazing place to apply what we've learned about reputation to marketing. Ethical questions
Barrett (PRWeek): What are we to make of something like the Facebook scenario with Burson-Marsteller last year? Is that really an isolated example?

Kraus (APCO Worldwide): You set your value system and communicate, reward, and punish based on what's important, the ethics and value. You train against it. You do as much as you can to create a culture that supports doing the right thing.

And the company has to do the same thing. But nobody could ever say 100% there is never going to be a bad apple. It's about how you handle it.

Hynes (Text 100): But the industry doesn't punish that behavior. What will happen to Lord Bell? What does happen to Burson? Everything just moves on. We pass on those issues to a large extent.

Barrett (PRWeek): What sort of punishment do you mean? A code of practice with fines?

Hynes (Text 100): I don't have the answer. People look introspectively, hope the right thing gets done, and there isn't a repeat in the behavior. But the industry just moves on.

Dave Senay (Fleishman-Hillard): The real tragedy with that Facebook/Google thing was the presumption by people who entered the business in the not-too-distant past that we're about dirty tricks, that it's acceptable. We have principles and values. You don't just become a PR person with a change of address or a new business card. The depressing fact about that, on the client or agency side, was the presumption this was OK.

Nobody is going to report that 99.9% of the world is great and PR is wonderful. We're in an unforgiving environment where there is no opportunity for error.

The most powerful force for good today is bringing together reputation and brand. The C-suite, even though that's where reputation management was born, had a hard time putting a finger on a value. But now it gets to them and we're trying to figure out how to make the most out of it.

I just feel like we're all living on the edge though. It would be naive if we didn't acknowledge the industry is one serious scandal away from a lot of unwanted attention and limitations.

The worst-case scenario is reporting PR through legal. What if everything had to be legally dry cleaned for us to do what we wanted? It's a business as well as moral issue to get this right.

We need to make a renewed commitment to this as an industry: we hang together or separately. We'll hang unless we're unified. We're not addressing enforceability.

Barrett (PRWeek): What can be put in place? What are the possibilities?

Diamond (CMG/Weber Shandwick): Every firm has a responsibility to act in a way they're proud of.

Senay (Fleishman-Hillard): Omnicom does a survey of C-suite individuals and lack of ethical standards is the number-one barrier to supplier selection. Do you need more reason to be ethical? How hard is the smart thing to do? We owe it to one another, our companies, and the industry to attack these things aggressively.

Diamond (CMG/Weber Shandwick): If you ask where the fundamental ethical underpinning of our industry is, not everybody is entitled to our representation.

Kotcher (Ketchum): It comes down to procedures, processes, training. People have to know exactly what's expected of them and how to behave inside our firms.

The world is extremely dynamic and there are always going to be issues, errors, and problems. But have you built a structure and organization that can self-correct, learn from that, and make sure you're putting safeguards in place against something new that really couldn't be anticipated happening again.

But we're living in a dynamic world where it's almost impossible to anticipate every problem we or clients are going to encounter.

Diamond (CMG/Weber Shandwick): There are also cultural sensitivities because if you go to Asia, development is a primary corporate, government, and individual people purpose. In Europe development is tempered very much by environmental issues.

Edelman (Edelman): We need an ability to speak out when the firm does not react responsibly. We are complicit if we don't.

Senay (Fleishman-Hillard): We have to have a sense of urgency in our actions. I remember James Murdoch speaking at the Arthur Page conference last year. He was dismissive of the magnitude of the [phone hacking] scandal. I wish I had the foresight to ask, “Do you fear you're going to lose your privilege to operate?” Because they did – a 168-year-old great newspaper went down the tubes.

Social media acuity
Barrett (PRWeek): Are PR agencies as ahead of the game on social media as they think they are? Or are they still behind where clients want to get to?

Edelman (Edelman): In many cases we are ahead. Xbox is an example where we went to bloggers with that product six months before launch and got some blunt feedback.

Microsoft absorbed it and changed the product. The bloggers were very enthusiastic prior to launch because they listened. That's all hugely positive and a very important role of PR.

Diamond (CMG/Weber Shandwick): We represent the US Army recruiting campaign, which is, by definition, targeting young people who live a digital life. One of the most popular things is that their young and old soldiers and officers are allowed to blog.

The Army's initial response was that we operate in a dangerous world and we might endanger folks? The marketing folks said, “We trust them with a weapon, we should trust them with a pen.”

To their credit, the senior officers said, “Go ahead.” Today, it's a vibrant place for young people thinking about the military and people in the military to communicate what their life really is.

Hynes (Text 100): Earlier we said, “This is fantastic. We're consultants – we own reputation.” But as soon as we get to social media we got into tactics. Actually, if you own brand and reputation and are a true consultant, social media is all part of that.

I want to make sure we don't keep getting caught in a tactical debate. It's just another way of doing what we've always done.

Diamond (CMG/Weber Shandwick): For us it is a tactic. For the other marketing arms it's a new world – they're trying to figure it out. We have always done it, as you say. That's why we should be the natural winners in this space.

Hynes (Text 100): But it's important for us to state that, as opposed to we're leading in this, right?

Diamond (CMG/Weber Shandwick):
Well, we are leading. We're leading because we do it naturally. We are the engagement people at the end of the day.

Hynes (Text 100): We're leading in engaging conversations, storytelling, and all elements of that. I'd rather say we're leading in that than social media.

Diamond (CMG/Weber Shandwick): There's a reality, though, to how the pitches go.

Hynes (Text 100): I'm selling my client my ability to develop strategy that relates to their business – that's what I want to own.

Senay (Fleishman-Hillard): We are undeniably better positioned on this than other marketing disciplines. We're displacing ad agencies, business consultancies, digital specialists, social shops.

It's more than the technology platform. There's a state of mind and second nature about relationships and conversations. If we don't assert ourselves we only have ourselves to blame.

Diamond (CMG/Weber Shandwick): It's a problem marketing service companies are having – they're seeing it as an addition, we see it as integrated.

Sample (Emanate): Our clients are even saying that. Some social media assignments moved out of our shop to a special agency, but came back because the client doesn't want to manage all those pieces. They don't integrate well. They're not on message and aligned with everything.

Kraus (APCO Worldwide): The greatest recognition is to be the partner who helps a client solve the problem or create the opportunity. That's the convergence between strategy and consulting and the execution that goes into these different areas.

Maintaining momentum
Barrett (PRWeek): So how does the industry continue to prosper in a very competitive agency environment?

Kotcher (Ketchum): CMOs and CCOs are looking through the other side of the lens at their customers, the end consumer of outward marketing efforts. How are they getting their information? What are the different channels?

When they look at where PR is relevant and has impact, that's our opportunity. Consumers are not differentiating whether they get their information from print, online, Twitter, or Facebook.

Senay (Fleishman-Hillard): Or a paid source.

Kotcher (Ketchum): Right, they're just not differentiating as much. We've got to make sure we're bringing value to the client and their consumer and customer relationships, as well as working well with the other disciplines also delivering content to that consumer. That's what integration is about.

Senay (Fleishman-Hillard): It's an easy equation: growth strategy equals personnel strategy.* And we are importing new skill sets and types of thinking. In digital, we have job titles we didn't have five years ago. In integrated, particularly driven by paid and analytics, we have people we would never have allowed in the front door 10 years ago because we need planners, media buyers, creative directors, and film producers. We're racing as fast as we can to claim that response.

Prosek (CJP Communications): Everyone needs to think like a renaissance marketer and not a PR person, so they understand the marketing mix enough to provide what is needed to solve the problem.

Edelman (Edelman):
We should think about the best client structure and help them to help us. Think about Bill Margaritis at FedEx, Jon Iwata at IBM, and Leslie Dach at Walmart. They report to the CEO and sit over marketing and PR. That's the perfect example. Reporting to legal is the worst because it's too risky.

Prosek (CJP Communications): If you're working with a CCO who's plugged into the CMO and they work together, the budget opens up. If you come through the CCO, [they say,] “Great idea,” tap you on the head, [give you a] little budget, and you can even lose your idea to another discipline. Then you're racing to figure out how to get paid. That's our real problem.

We have the chops to do renaissance marketing, but if you come through the wrong channel or don't negotiate the right deal you'll lose your strategy and the people who make the money will be ad agencies and other creatives who execute on it. Our structures are wrong to take advantage monetarily from these opportunities.

Sample (Emanate): We have to understand how other disciplines work so we don't get invited in as part of blunt-force marketing where PR and every other discipline are at the table. We need to be smart and sophisticated about the other disciplines so we're the counselor, telling the client what the strategy needs to be and the levers to pull to create the shortest path. That's what's going to win with the client.

Coyne (Coyne PR): It's evolving. It's going to be a little bit on their terms, too. They're going to want to talk to PR or communications firms. We have to make them want to talk to us. We can't deny the communication.

The measurement challenge
Barrett (PRWeek): Who do you have to get that model in front of to make it resonate? Can you have industry-wide measurement or is each agency's system a competitive advantage?

Diamond (CMG/Weber Shandwick): The advantage will be when we come up with an industry-wide system.

Nielsen was great for ad agencies, but it just measures eyeballs and not predilection to buy. It doesn't measure effectiveness or likeability, but billions of dollars are spent because there's a commonly accepted eyeball-reach concept.

Prosek (CJP Communications): And there are no industry standards for procurement departments. They understand buying advertising because it's been done for so many years and the measurement of profits is there.

Senay (Fleishman-Hillard): There will be standards, but they won't come out of the agencies.

Hynes (Text 100): Our world is changing continually and we need to think about expressions rather than impressions: likeability, favorability, and all those things as opposed to outputs, outcomes even.

The speed of technology allows our audiences to do more things and react in different ways. We must make sure models that root us in today or the past enable us to build for the future. My worry is that models can be limiting by virtue of being.

Kotcher (Ketchum): In corporate communications there are sophisticated, advanced models on reputational measurement. Where it is a jump ball is in marketing communications.

The opportunity to link PR and communications to behavioral change in marketing communications has never been greater. We can be much more specific and know more about audiences and how they're reacting on a moment-by-moment basis to the communications they're getting.

Kraus (APCO Worldwide):
Did they buy the product, go in the store, or recommend it to a friend? It's not just the eyeball. It's what influences behavior. We have to be careful not to be so anti the political analogy because it's what makes people vote for the candidate. What creates passion around the choice?

Procurement's impact
Barrett (PRWeek): What impact has procurement had on the way you work with clients?

Kraus (APCO Worldwide): There's an interesting divergence between more people going through procurement while also being asked to provide more thoughtful intellectual capital to drive value.

I don't know whether it's just making sure the people doing it are educated enough about our industry so they understand what we do and how we charge. Is the way we charge or have charged relevant anymore?

Diamond (CMG/Weber Shandwick): I don't like the constraints procurement puts on our pricing because we don't want that, but it has gotten better over the last couple of years. This is now an issue we live with and accept – we try to have discussions.

Procurement is a key issue, but to an extent the decision has been made. We're going to be subjected more and more to procurement. I'd love to do more educating of procurement and teach them the value of what we do. But in the battle over procurement on the personal services side, we're getting hit, lawyers are getting hit, media firms are getting hit.

Kotcher (Ketchum): Procurement is here and it's the way the world works. The objective is to get the best quality at the lowest price. That's their job. We have the same responsibility to our clients. We just celebrated 10 years of Text 100 and Ketchum at IBM all working together. And procurement is very much a part of the dynamic – and a positive.

Hynes (Text 100):
There are times we got into skirmishes we probably shouldn't with PR people and procurement has been able to elevate it to understand the issue.

Kotcher (Ketchum): And a lot of companies have procurement groups that specialize in purchasing marketing and communications.

Diamond (CMG/Weber Shandwick): The big issue is we're still not paid for the value of our ideas. That's the most frustrating thing.

Prosek (CJP Communications):
I've often thought of a deal where we get our percent of their ad-buy revenue.

Diamond (CMG/Weber Shandwick): We're all trying to do value pricing and performance. The biggest issue is clients have still not got their head around it. It's not the agencies that are resistant, but it's hard to get clients to buy it. Every other discipline has the same issue. I'm not sure we're unique.

Meeting demand for diversity
Barrett (PRWeek): How do you ensure your workforce is as diverse as the customers of your clients and the general population?

Edelman (Edelman): PR schools are remarkably white. We can't change the story unless we get kids in high school to think about PR as a real option.

Senay (Fleishman-Hillard):
We need to make PR an attractive career option for minorities. Right now they don't see a reflection of themselves in the agency hierarchy. We are lacking people of color in the middle and top. In most urban areas, minorities are a majority, but firms in those areas don't reflect that reality.

Barrett (PRWeek): So what's to be done about it?

Prosek (CJP Communications): People in internships are subsidized by their parents. Pay is one thing, but the ability to live somewhere like New York City still needs to be subsidized. We all pay interns, but we need to pay enough to accommodate someone from a disadvantaged background or a background where their parents didn't pay for school.

Kotcher (Ketchum): It's not just about looking like our clients, but looking like their customers and understanding who's buying the products and services, who is determining the corporate reputation.

In 2011, almost 25% of our hires were in the ethnic diverse category. It's the responsibility of every firm to make sure we're more diverse. Over time that will change what agencies look like. It's not something you can do overnight.

*Correction: An earlier version of this article quoted Dave Senay, CEO of Fleishman-Hillard as saying: "It's an easy equation: growth strategy plus personnel strategy.”  That was incorrect. He said:  “It's an easy equation:  growth strategy equals personnel strategy.”  PRWeek regrets this error.

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